Chancellor Darling was faced with the prospect of having to re-work his Budget arithmetic drastically for his pre-Budget statement in the autumn.
On Wednesday night he warned that while the British economy should avoid a recession, it is growing far slower than he forecast in his March Budget. Slower growth means less money paid in taxes and possibly more Government spending on unemployment and related benefits. Higher inflation also means a booming bill for state pensions.
Then on Thursday morning National Statistics published numbers showing the public finances already took a sharp turn for the worse in May. The current budget – funding the Government’s running costs – is supposed to break even over the economic cycle. Last month it ran £9.1 billion into the red, after a £7.6 billion shortfall in May last year.
The Treasury said “It remains too soon to assess whether the second half of 2006 marks the end of the economic cycle that is judged to have started in the first half of 1997.”
In other words, it reserves the right to shift the goalposts by shifting the timing of the economic cycle. It has done so before.
Total net borrowing by the public sector, including capital investment, for which the Government intends to borrow, ran up a £11 billion deficit last month against £8.5 billion in May, 2007.
Meantime, Bank of England figures showed the money supply easing off in a quieter economy.